November 26, 2014

Last Friday, Federal District Court Judge Michael Shipp entered a ruling ("Christie II") finding that New Jersey's most recent legislative attempt to legalize sports betting by means of a "partial repeal" of its sports betting prohibitions still violated the federal Professional and Amateur Sports Protection Act (PASPA). Judge Shipp determined that New Jersey's attempt to "repeal" its sports betting ban, but only for wagers placed at licensed racetracks and casinos, was impermissible under the prior Third Circuit ruling striking down an earlier effort by New Jersey to legalize sports betting. ("Christie I"). Judge Shipp also entered a permanent injunction barring New Jersey from implementing its sports betting scheme.

New Jersey state officials and their attorneys have been selling the partial repeal law to the media as a legal scheme that was explicitly permitted by the Third Circuit's Christie I decision. So why did the state lose? The Christie II district court opinion really turns on three key points, not all of which are strictly "legal" in nature.

I. Third Circuit Language Cut Against New Jersey

The current litigation is a rare situation where the relevant legal authority is essentially one statute (PASPA) and one appellate decision (Christie I). Because the text of PASPA suggests a complete ban on sports betting, New Jersey's partial repeal law has to satisfy the narrow carveout established by the Third Circuit in Christie I:

On the one hand, a state may repeal its sports wagering ban, a move that will result in the expenditure of no resources or effort by any official. On the other hand, a state may choose to keep a complete ban on sports gambling, but it is left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be.

Now, as previously discussed, that particular quote is buried in a lengthier passage in the Christie I opinion, and to be fair to the state and its attorneys, the Christie I opinion is not a model of clarity. Still, the district court read that passage as offering New Jersey exactly two options: a) a complete repeal of the sports wagering ban, or b) maintaining a complete ban on sports wagering, but with the ability to set lower penalties for violations of the law or to show broader prosecutorial discretion in enforcing the ban. As the district court noted, this "all or nothing" approach where a state has only two choices—complete deregulation or regulation in conformity with federal standards—is consistent with long-standing federal case law in the area of federal preemption of state regulations. And, as the district court noted in a footnote dismissing New Jersey's severability argument, the New Jersey legislature gave no indication that it intended or desired completely unregulated sports betting. [Christie II, p. 27, FN 15].

New Jersey's argument for a partial repeal of the sports wagering ban rests on the Third Circuit's language in Christie I which declares the state may establish "the exact contours" of any sports betting prohibition; the state argues this passage means it can also establish the "exact contours" of a repeal of its sports betting prohibition (i.e., the state can limit the scope of any repeal). The problem with this argument is that the language cited by the state—"exact contours"—appears only in connection with the second option offered by the Third Circuit—"a complete ban on sports gambling". The Third Circuit did not suggest that a state had similar latitude to shape the "exact contours" of a repeal, implying that a repeal had to be absolute rather than limited or "partial".

The district court opinion in Christie II noted that the dissenting judge from Christie I also seemed to view the state's options as being a complete repeal or a complete ban, with no room for a "partial repeal"—in other words, there was no legal way for New Jersey to be "half pregnant" with sports betting. The district court also called out New Jersey for misquoting Christie I:

Defendants go to great lengths to recast this passage in a light contrary to its meaning. The entire passage is included in full so that its context can be examined. [Christie II, FN 9, p. 18].

The district court likely took this unusual step because the New Jersey legislature explicitly cited the "exact contours" language in the explanatory comments to the partial repeal bill. Look for the leagues to emphasize both of these points to the Third Circuit in their Christie II appeal briefs.

II. New Jersey's "Partial Repeal" Statute Was Too Clever By Half

Building on its preemption analysis, the district court seemed singularly unimpressed with New Jersey's attempt to characterize its most recent legislative fix as a "partial repeal":

In the context of a preemption analysis, federal courts have been unwilling to allow states to do indirectly what they may not do directly. ... While styled as a partial repeal, the 2014 Law would have the same primary effect of the 2012 Law—allowing sports wagering in New Jersey’s casinos and racetracks for individuals age twenty-one and over but not on college sporting events that take place in New Jersey or on New Jersey college teams. This necessarily results in sports wagering with the State’s imprimatur, which goes against the very goal of PASPA—to ban sports wagering pursuant to a state scheme. The Third Circuit recognized that the choice PASPA left states might be a hard choice, but here New Jersey is not making that hard choice, and the Court cannot ignore Congress’s intent in enacting PASPA just because New Jersey carefully styled the 2014 Law as a repeal. [Christie II, p. 24].

The district court further noted in a footnote that, legally speaking, any purported "repeal" of a statute that falls short of a full repeal is actually to be treated as an amendment to the statute. [Christie II, p. 27, FN 14]. "As a consequence, the State Defendants’ attempt to fit the 2014 Law into one of the options left by the Third Circuit is even more attenuated." [Id.].

Here, the district court seemed to be bothered by what I refer to as the "too clever by half" syndrome. Although lawyers are popularly viewed as sharp operators who try to seize on any technicality or ambiguity to advance their clients' argument, in reality judges tend to view attempts to exploit such linguistic loopholes with skepticism. For example, in the past Term, the United States Supreme Court (SCOTUS) considered a copyright case in which a company, Aereo, tried to exploit a legal loophole prohibiting re-transmission of network broadcasts by installing tens of thousands of mini-antennae, each of which was dedicated to one individual receiver, and thus was arguably a legally permissible "private" transmission. SCOTUS found that, although Aereo's scheme might technically comply with the law as a matter of form, its actual effect was a violation of the primary purpose of federal copyright law and thus was illegal. Stripped of its business model and facing numerous copyright infringement lawsuits, Aereo recently was forced into bankruptcy.

This too-clever-by-half syndrome has also affected prior gambling cases. For example, the Kansas Court of Appeals shot down a scheme in which businesses tried to circumvent state bans on poker by adding a purported "skill" element to traditional Texas Hold 'Em (illegal under Kansas law) in which the deck is exposed to players for several seconds prior to the deal, providing a chance for players to memorize the position of some of the cards (see Poker Grump's analysis of and link to the court decision on "Kandu Challenge" poker). Similarly, the Washington Supreme Court rejected a business scheme in which "eBay-style" online sports gambling was asserted to be legal because the Betcha.com website explicitly permitted gamblers to "welch" on bets, allegedly making the bets legally unenforceable and thus arguably beyond anti-bookmaking laws (see my prior discussion of the case here and here).

Here, the district court looked past the New Jersey legislature's formal label of the recent bill as a "partial repeal" to the pragmatic effect of that statute. The court found that the most recent legislation, practically speaking, had the same effect as the 2012 bill found invalid in Christie I—sports betting was legalized only in state-licensed racetracks and casinos, only available to individuals over age 21, and not applicable to New Jersey-based collegiate teams:

New Jersey’s attempt to allow sport wagering in only a limited number of places, most of which currently house some type of highly regulated gambling by the State, coupled with New Jersey’s history of attempts to circumvent PASPA, leads to the conclusion that the 2014 Law is in direct conflict with the purpose and goal of PASPA and is therefore preempted. [Christie II, pp. 26-27].

Based on these similarities between the invalidated 2012 statute and the 2014 partial repeal statute, the district court rejected New Jersey's label of "partial repeal" for its current statute and found that it was still an impermissible de facto state authorization of sports betting:

“Abraham Lincoln once asked: If Congress said that a goat’s tail was a leg, how many legs would a goat have? Four. Calling a tail a leg does not make it so.” City of Houston v. Am. Traffic Solutions, Inc., No. 10-4545, 2011 WL 2462670, at *3 (S.D. Tex. June 17, 2011). [Christie II, FN 13, p. 25].

III. The Judge Falls Down the Sports Leagues' Slippery Slope, Gets Trampled by a Parade of Horribles

In analyzing PASPA, the district court paid particular attention to the sports leagues' argument that New Jersey's partial repeal of its sports betting prohibitions would potentially lead to a rapid spread of legalized sports betting throughout many other states:

The Court is guided by the Third Circuit’s determination of the congressional purpose of PASPA —“to ban gambling pursuant to a state scheme . . . because Congress was concerned that state-sponsored gambling carried with it a label of legitimacy that would make the activity appealing.” Christie I, 730 F.3d at 237. In 1992, when Congress enacted PASPA, it was aware that all but one state had broad prohibitions on sports wagering. As the Third Circuit found, Congress sought to make it harder for states “to turn their backs on the choices they previously made.” Id. at 234. Congress knew states, including New Jersey, were considering whether to allow some form of sports wagering and was concerned that the spread of sports wagering on “a piecemeal basis” would ultimately result in “an irreversible momentum” of sports wagering in the country. S. Rep. 102-248, at 5. In this Court’s view, the Senate Report and the Third Circuit’s finding of congressional purpose support the conclusion that PASPA preempts the type of partial repeal New Jersey is attempting to accomplish in the 2014 Law, by allowing some, but not all, types of sports wagering in New Jersey, thus creating a label of legitimacy for sports wagering pursuant to a state scheme. [Christie II, p. 24 (emphasis added)].

Although consideration of the future impact of a ruling is fair game in court, lawyers are prone to make arguments in which an adverse decision is asserted to be the first step on a slippery slope, which will inevitably open the floodgates to an undesirable parade of horribles. Here, the district court was clearly concerned about giving the judicial stamp of approval to New Jersey's partial repeal scheme because doing so would provide a road map for other states to similarly sidestep PASPA's sports betting ban, effectively thwarting Congress' intent to limit the spread of sports betting.

These types of slippery slope arguments have been used to successfully derail arguments attempting to strike down state poker bans. For example, in the PPA's ill-considered challenge to Washington state's online gaming ban, the Washington Supreme Court was swayed by both a slippery slope argument and a parade of horribles argument. First, the court expressed concern that authorizing online poker would necessarily require them to authorize other forms of online gaming. Further, the court was concerned that legalizing online poker would lead to a wide array of social ills, including gambling addiction, organized crime, and money laundering. Similarly, the South Carolina Supreme Court, in considering the PPA's equally ill-considered challenge to a state poker ban, declined to strike down an archaic, vague anti-gambling statute applied to a low-stakes home poker game in large part because the decisive judge feared doing so would open the floodgates to all manner of gambling.

Here, the district court's concerns about the effect of its decision reappeared in its ultimate conclusion:

New Jersey’s position on sports wagering is not unique. In fact, many states are currently rethinking their prohibitions on sports wagering. In Christie I, this Court indicated that it could not judge the wisdom of PASPA but only speak to PASPA’s legality as a matter of constitutional law. The Third Circuit made a similar recognition in Christie I. The Court is yet again faced with similar constraints in Christie II and still may not judge the wisdom of PASPA. To the extent the people of New Jersey, or any state, disagree with PASPA, their primary remedy is through the repeal or amendment of PASPA in Congress. [Christie II, p. 27 (emphasis added)].

Considering that a ruling in favor of New Jersey would, as a practical matter, render PASPA effectively toothless, it is hardly surprising that the district court ultimately enforced PASPA in light of the Third Circuit's finding that PASPA was a valid use of Congress' constitutional authority.

New Jersey state senator Ray Lesniak says that New Jersey is "even money" to win on appeal. The smart money is on the Third Circuit again affirming the district court's decision.